1. Introduction
In this News, we mentioned some points to keep in mind about the Invoice System. In order to prepare for the start of the Invoice System on 1 October 2023, it is quite essential to understand the Japanese consumption tax system and assess whether your business should be registered as a qualified invoice issuer, based on your business relationship or customers’ tax-status. With our skills and experiences, ARK can provide you total services including the registration process and reimplementation of the accounting software to comply with the requirements of the Invoice System.
Please note that this News only introduces general outlines and does not include professional advice. So please make sure not to make any decisions without taking professional advice individually. If you have any questions, please feel free to contact us.
（References / in Japanese）
National Tax Agency “Q&A Regarding Consumption Tax Credit for Filing under the Invoice System”
https://www.nta.go.jp/taxes/shiraberu/zeimokubetsu/shohi/keigenzeiritsu/qa_invoice_mokuji.htm
National Tax Agency “Notice on Consumption Tax Reform”
https://www.nta.go.jp/publication/pamph/shohi/r04kaisei.pdf
（Accessed on July 23, 2022）
The Qualified Invoice Retention System (“the Invoice System”) will come into effect on 1 October 2023 in Japan. The invoice system has already been adopted in several countries. In line with the introduction of the multiple tax rate system (10% for the standard tax rate and 8% for the reduced tax rate), Japan will also start the Invoice System in order to calculate input consumption tax (CT) credit properly for filing. In this News, we will mention some points to keep in mind about the Invoice System for Japanese consumption tax.
2. Outline of the Invoice System
2. Outline of the Invoice System
The Invoice System allows input CT credit for consumption tax returns based on the retention of accounting books and qualified invoices provided by a qualified invoice issuer registered with the National Tax Agency (NTA). Qualified invoices must include certain information such as a registration number and consumption tax amount categorized by each tax rate.
3. Qualified Invoices
3. Qualified Invoices
Qualified invoices under the Invoice System refer to sales invoices, delivery notes, or any other related documents which meet certain conditions, but not requiring a specific format. In addition to the current itemized invoices, qualified invoices must include the following matters:
① Registration number for a qualified invoice issuer
② Applicable tax rate
③ Consumption tax amount categorized by each tax rate and others
4. Key points to note for sellers and buyers
② Applicable tax rate
③ Consumption tax amount categorized by each tax rate and others
4. Key points to note for sellers and buyers
There are some key points to note for both sellers and buyers of business transactions.
(1) Points to note for sellers
Once approved as a qualified invoice issuer, a seller is in principle required to provide qualified invoices for buyers and retain copies of them.
(2) Points to note for buyers
In order to claim input CT credit for filing, a buyer is in principle required to obtain qualified invoices from a seller and retain them with the record of certain information in accounting books. In addition, invoices issued from those venders other than qualified invoice issuers (i.e., consumers, tax-exempt enterprises, and non-registered taxable enterprises) are not eligible for claiming input CT credit under the new system; however, there is a transitional measure under which a certain portion of input CT is still creditable during the following periods:
① October 1, 2023 ～ September 30, 2026 80% of input CT is creditable
② October 1, 2026 ～ September 30, 2029 50% of input CT is creditable
③ October 1, 2029 ～ Not creditable
5. Registration process to become a qualified invoice issuer
Once approved as a qualified invoice issuer, a seller is in principle required to provide qualified invoices for buyers and retain copies of them.
(2) Points to note for buyers
In order to claim input CT credit for filing, a buyer is in principle required to obtain qualified invoices from a seller and retain them with the record of certain information in accounting books. In addition, invoices issued from those venders other than qualified invoice issuers (i.e., consumers, tax-exempt enterprises, and non-registered taxable enterprises) are not eligible for claiming input CT credit under the new system; however, there is a transitional measure under which a certain portion of input CT is still creditable during the following periods:
① October 1, 2023 ～ September 30, 2026 80% of input CT is creditable
② October 1, 2026 ～ September 30, 2029 50% of input CT is creditable
③ October 1, 2029 ～ Not creditable
5. Registration process to become a qualified invoice issuer
In order to become a qualified invoice issuer, business entities including a taxable enterprise are required to submit an application for registration to the tax authorities. In order to be registrant on October 1, 2023, when the Invoice System will start, an application for registration should be submitted no later than March 31, 2023. Once registered, your registration number will be viewed on the website of the NTA. Please note that the registration for a qualified invoice issuer is not mandatory; thus, it is highly recommended to assess whether your business entity should be registered, considering your business transactions or customers’ tax status (a taxable entity or tax-exempt entity).
6. Registration for tax-exempt enterprises
6. Registration for tax-exempt enterprises
As a transitional measure, during the period between 1 October 2023 and 30 September 2029, a tax-exempt enterprise which has submitted an application for registration as a qualified invoice issuer can become a taxable enterprise without submitting the “Report on the Selection of Taxable Proprietor Status for Consumption Tax.” A qualified invoice issuer is deemed as a taxable enterprise and required to file a consumption tax return for the taxable period including the registration date. Please note that once registered as a qualified invoice issuer, except for the taxable period including October 1, 2023, it is in principle required to continue taxable status for at least two years since the taxable period including the registration date.
7. Conclusion
7. Conclusion
In this News, we mentioned some points to keep in mind about the Invoice System. In order to prepare for the start of the Invoice System on 1 October 2023, it is quite essential to understand the Japanese consumption tax system and assess whether your business should be registered as a qualified invoice issuer, based on your business relationship or customers’ tax-status. With our skills and experiences, ARK can provide you total services including the registration process and reimplementation of the accounting software to comply with the requirements of the Invoice System.
Please note that this News only introduces general outlines and does not include professional advice. So please make sure not to make any decisions without taking professional advice individually. If you have any questions, please feel free to contact us.
（References / in Japanese）
National Tax Agency “Q&A Regarding Consumption Tax Credit for Filing under the Invoice System”
https://www.nta.go.jp/taxes/shiraberu/zeimokubetsu/shohi/keigenzeiritsu/qa_invoice_mokuji.htm
National Tax Agency “Notice on Consumption Tax Reform”
https://www.nta.go.jp/publication/pamph/shohi/r04kaisei.pdf
（Accessed on July 23, 2022）
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